I think it is not a far-out probability. Judging from traffic volume here in Metro Manila, seems that the volume of vehicles on regular working days at today's $120+ a barrel price were not different when oil prices were at $80 or $100 a barrel. Initial conclusion: oil demand is "inelastic" or not price-sensitive. Thus, it should be safe to assume that the volume of vehicles plying the streets and highways will be the same today as in the next few months even if oil prices will reach $140, $150, or more.

Why? Government over-regulation of public land transportation. Just when people want to leave their cars at home and take public transpo, more efficient and comfortable public land transpo are being discouraged from plying the roads due to government's difficult regulations, coupled with harassing and impounding so-called "illegal" or no-franchise public transpo, which reduces the volume of public land transpo in the cities, forcing many people to drive their cars.

In the US and many rich countries, it never fails to amaze me why the state and city governments cannot trust private enterprises to provide bus lines that compete among each other, because those local governments still monopolize buses! Because of government bus monopoly, the buses are few, they come far and several minutes from each other; the number of served routes are few, resulting in people waiting long for the buses. If you wait long and walk long distances, better ride a bicycle, or drive your car, even if oil prices keep on rising.

That is why governments are among the least credible institutions to "fight GHG emissions and climate change" because they are the main culprit why markets for public land transpo cannot function efficiently.

Meanwhile, I wrote this last week, May 13, 2008.

Peak Oil and Price Bubbles

World oil prices hit the $126/barrel mark last Friday, May 9. It seemed that last week, the commodity was rising by around $1/day on average.

There was one $200/barrel "peak oil" theory that I heard. Goldman Sachs predicted last week that the world will see that mark in 2 years. I feel that the world will see that mark earlier, less than 2 years, judging from the pace of current price hikes, so I think the "peak oil" theory of $200 a barrel is a joke. When the oil reaches $201 a barrel next year, it will further rise towards $300, and people will still be driving their cars -- even on weekends only to tour their families to visit other friends and relatives.

A friend, Cynthia D., noted that much of the latest increase in oil prices has been due to speculation. So many are just taking it for granted that the price of oil MUST continue increasing at the rate we have seen over the last two years. She thinks this has already passed the point which was the realistic value of oil and now we are in a bubble. And no matter what, bubbles eventually pop.

I think there is general recognition, although not a consensus yet, that current world oil prices are bubble prices and hence, will pop up someday. But the bigger bubble that helps prop oil prices is the US$. At Euro 1.60/US$ for instance, many people still think there is a lot of room for further depreciation of the US$ given the spend-and-spend, tax-and-borrow mentality of the US government, from federal to state to county/city levels, as well as the trade deficit. The more fiscal irresponsibility to be exhibited by the US federal and local governments and continuing trade deficit, the more room for $ depreciation.

So people who hold assets in US$ will feel "robbed" by inflation and currency depreciation. That is why many of them dump their $ and buy oil futures and other commodities (gold, copper, rice, coffee, corn, etc.) in order to protect their money.

Another problem is that while the oil price bubble continues, the political instabilities in some oil-producing countries (Nigeria, Venezuela, Iraq, Iran,...) also continue. So if you're a highly oil-dependent industry, better buy oil at bubble prices but you are guaranteed of delivery in the next 2 months at least, than wait for the bubble to pop up next week or next month and have no guaranteed delivery in the next 2 months at least.

The $200 "peak oil" theory is wrong. When you say "peak", no other price can top or exceed it. With the current trend in oil prices, bubble or no bubble, I think a "peak oil" should be in the vicinity of $1,500 a barrel, or perhaps $2,000, 40 to 50 years from now. This is partly due to the fact that no matter how high petroleum prices will be, many governments will not let go of oil taxes. Governments in general are parasitic: their tax revenue increases as the suffering by the public increases, and they couldn't care less.

Half a century from now, many oil reserves in the world would be depleted and the world will consume more renewable energy sources, and the "peak price" will no longer be exceeded, succeeding oil prices can only go down.
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